devon jan...devon trans-tasman fund $3.7912 global themes fund $2.8823 prices as at 31 january 2018...

MONTHLY REPORT

DevonFUNDS MANAGEMENT

Keeping you up to date with Devon Funds and the markets

Level 10, Rabobank Tower, 2 Commerce Street, Auckland 1010PO Box 105609, Auckland 1143, New ZealandPhone: 0800 944 049 | +64 9 925 3990 | Fax: +64 9 307 7088

Client Services: [email protected] Website: DevonFunds.co.nzDevonFUNDS MANAGEMENT

AT A

GLANCE

QUARTERY

OUTLOOK

I N T H I S R E P O R T

U N I T P R I C E S

Devon Funds Management Limited, its directors, employees and agents believe that the information herein is correct at the time of compilation; however they do not warrant the accuracy of that information. Save for any statutory liability which cannot be excluded, Devon Funds Management Limited further disclaims all responsibility or liability for any loss or damage which may be suffered by any person relying upon such information or any opinions, conclusions or recommendations herein whether that loss or damage is caused by any fault or negligence on the part of Devon Funds Management Limited, or otherwise. This disclaimer extends to any entity which may distribute this publication and in which Devon Funds Management Limited or its related companies have an interest. We do not disclaim liability under the Fair Trading Act 1986, nor the Consumer Guarantees Act 1993, to the extent these Acts apply. This document is issued by Devon Funds Management Limited. It is not intended to be an offer of units in any of the Devon Funds (the ‘Funds’). Anyone wishing to apply for units will need to complete the application form attached to the current Product Disclosure Statement (PDS) which is available at www.devonfunds.co.nz. Devon Funds Management Limited, a related company of Investment Services Group Limited, manages the Funds and will receive management fees as set out in the PDS. This document contains general securities advice only. In preparing this document, Devon Funds Management Limited did not take into account the investment objectives, financial situation and particular needs (‘financial circumstances’) of any particular person. Accordingly, before acting on any advice contained in this document, you should assess whether the advice is appropriate in light of your own financial circumstances or contact your financial adviser. No part of this document may be reproduced without the permission of Investment Services Group.

M A R K E T C O M M E N T A R Y

M A R K E T I N D I C E S

DEVON ALPHA FUND

$1.6895DEVON AUSTRALIAN FUND

$1.4500DEVON DIVIDEND YIELD FUND

$1.8296DEVON DIVERSIFIED INCOME FUND

$1.5538DEVON TRANS-TASMAN FUND

$3.7912GLOBAL THEMES FUND

$2.8823Prices as at 31 January 2018

Index Region Monthly Return 1 Yr. Return

S&P/NZX50G NZ 0.5% 19.7%

S&P/ASX200G AUSTRALIA -0.4% 12.2%

MSCI World Index GLOBAL 5.3% 26.6%

S&P500 USA 5.7% 26.3%

FTSE100 UK -2.0% 10.4%

NIKKEI 225 JP 1.5% 23.6%

NZ 90 Day Bank Bill NZ 0.2% 2.0%

Market Commentary

At a Glance Page 1

Devon Fund Summaries

Alpha Fund Page 2

Australian Fund Page 3

Diversified Income Fund Page 4

Dividend Yield Fund Page 5

Trans-Tasman Fund Page 6

Global Themes Fund Page 7

January 2018

Sustainable Investing Over the past 20-years significant progress has been made in the provision of opportuni-ties for investors to access strategies which recognise environmental, social and govern-ance issues (ESG). More than ever people are looking to ensure that their investments more closely reflect their values on everything from good corporate citizenship, workforce and governance diversity, paying fair taxes to environmental practices and limits on carbon footprints. This has been driven by a number of factors with investor education, cli-mate change, population growth and longevity all contributing to this focus. This type of investing goes by many names although it is often referred to as socially responsible (SRI), sustainable and ethical investing but underlying all these different titles, are processes designed to incorporate ESG factors into investment decisions, to better manage risk and generate sustainable, long-term returns.

As ethical, environmental and social issues become increasingly prominent in global dia-logue, interest in sustainable investing is growing rapidly. Last year a report by the Global Sustainable Investment Alliance … Read More

Devon is delighted to have won the Fund Manager of the Year: Domestic Equities Category, New Zealand 2017.

Thanks to all our clients for your on-going support. Morningstar Awards 2017©. Morningstar, Inc. All Rights Reserved. Awarded to Devon Funds Management for Morningstar Fund Manager of the Year 2017, Domestic Equities Category, New Zealand. Further details on the Devon Investment Funds can be found in the Devon Product Disclosure Statement available at www.devonfunds.co.nz

https://devonfunds.co.nz/sustainable-investing


MONTHLY REPORT



Devon Funds Management Limited does not guarantee nor warrenty nor make a representation as to the correctness or completeness nor accepts liability for loss or damages as a result of any reliance on the information presented.

DEVONALPHAFUND

F U N D O U T L I N E The Alpha Fund invests in a concentrated portfolio of approximately 10 to 15 select companies predominantly listed on the NZ and Australian share markets. The Fund does not follow any index, is actively managed and aims to generate capital growth over the long term. Currency exposure is actively managed.

K E Y H O L D I N G S A S S E T A L L O C A T I O N

Vista Group NZ 0.106433Contact EneNZ 0.102888Healthscop AU 0.083015oOh!media AU 0.061599MetlifecareNZ 0.051819Spark Infras AU 0.05016Westfield CAU 0.041329

Financials

Materials

Discretionary

Energy

Healthcare

Industrials

Info Tech

Utilities

Cash

Devon Alpha Fund

$7,500

$9,500

$11,500

$13,500

$15,500

$17,500

$19,500

$21,500

Jan 1

1M

arM

ay Jul

Sep

Nov

Jan 1

2M

arM

ay Jul

Sep

Nov

Jan 1

3M

arM

ay Jul

Sep

Nov

Jan 1

4M

arM

ay Jul

Sep

Nov

Jan 1

5M

arM

ay Jul

Sep

Nov

Jan 1

6M

arM

ay Jul

Sep

Nov

Jan 1

7M

arM

ay Jul

Sep

Nov

Jan 1

8

N E T P E R F O R M A N C E Based on $10,000 invested at 1 January 2011

G E O G R A P H I C A L L O C A T I O N

P E R F O R M A N C EAs At 31/01/2018

1 Mth 3 Mth 1 Yr 3 Yr p.a 5 Yr p.a

Devon Alpha Fund -0.7% 4.2% 15.3% 5.7% 12.1%

OCR 0.2% 0.5% 2.0% 2.4% 2.6%

Devon Alpha Fund returns are after all fees and expenses, but before tax which varies by investor.

January 2018

D E V O N A L P H A F U N D

The Alpha strategy was supported during the month by positive returns from our investments in Resmed and BHP Billiton. Super Retail Group also contributed well to the Fund, rallying by over 6.0%. The Super Retail share price has recovered strongly over the past couple of months after it, and many other Retail stocks, were sold down by investors in anticipation of the launch of an Amazon operation in Australia in late 2017. Although Amazon has globally chal-lenged the traditional retailing model, we have continued to own this business due to its strong brands, excellent management and valuation support. We last caught up with the company late last year and were particularly impressed with the like-for-like growth in their Auto and Leisure divisions, the store development programme across the Group and the focus of management to grow their click-and-collect capability and Digital presence.

New Zealand Equities 25.2%

Australian Equities 41.9%

Cash 32.9%

Total 100.0%

Currency Hedge 30.6%

P O R T F O L I O M A N A G E RNick Dravitzki

Over the last decade Nick has specialised in investing in high yield equities and is Portfolio manager for the Devon Alpha, Diversified In-come and Dividend Yield Funds. At Devon,

Nick has responsibility for the analysis of con-sumer staples, IT, consumer discretionary and property sectors. Nick is also responsible for our quantitative screening process. NOTE: Further information on the Devon Alpha Fund can be found in our Quarterly Fund Updates

by visiting https://devonfunds.co.nz/alpha-fund or by clicking HERE

https://disclose-register.companiesoffice.govt.nz/disclose/


MONTHLY REPORT




DEVONAUSTRALIANFUND

F U N D O U T L I N E The Australian Fund is actively managed and invests in a select portfolio of approximately 25 to 35 companies which are primarily Australian listed companies. The Australian market is much larger than the NZ market and offers exposure to a number of sectors that are not available in NZ. The Australian dollar currency exposure of this Fund is typically unhedged.


Financials

Materials

Discretionary

Energy

Healthcare

Industrials

Info Tech

Staples

Telecoms

Utilities

Cash

Devon Australian Fund

$7,500

$8,500

$9,500

$10,500

$11,500

$12,500

$13,500

$14,500

$15,500

$16,500

$17,500

Jan 1

1M

arM

ay Jul

Sep

Nov

Jan 1

2M

arM

ay Jul

Sep

Nov

Jan 1

3M

arM

ay Jul

Sep

Nov

Jan 1

4M

arM

ay Jul

Sep

Nov

Jan 1

5M

arM

ay Jul

Sep

Nov

Jan 1

6M

arM

ay Jul

Sep

Nov

Jan 1

7M

arM

ay Jul

Sep

Nov

Jan 1

8



Dual Listed 3.7%


Cash 3.2%

Total 100.0%

Currency Hedge 0.0%



Devon Australian Fund -0.8% 1.3% 14.3% 8.9% 10.0%

ASX200 Index Gross (NZD) -1.0% 0.7% 18.5% 8.0% 6.4%

Devon Australian Fund returns are after all fees and expenses, but before tax which varies by investor.

January 2018

P O R T F O L I O M A N A G E RTama Willis

After a long period in international invest-ment markets, Tama returned to NZ after a very successful career in London and Singa-pore to join Devon’s investment team and

holds responsibility for Devon’s Australian and Trans Tasman Funds. Tama is widely regarded as a leading expert on resource and mining stocks.

D E V O N A U S T R A L I A N F U N D

The Australian Fund performed broadly in line with its benchmark during the month. Performance was supported by our investments in National Tyre & Wheel and People Infrastructure Limited which rallied 4.8% and 3.7% respectively. National Tyre & Wheel is a recent IPO that we participat-ed in. The company is a tyre and wheel wholesaler to customers in Australia, New Zealand and South Africa under a range of brands including Cooper and Mickey Thompson. This business has a successful history of growth, organically and through acquisition, which we expect to continue over the medium-term. People Infrastruc-ture is an Australasian workforce manage-ment company that provides businesses with staff to support their employment requirements. There has been a significant lift in part-time and causal work hours over the past 20-years which is driving demand for the services of People Infrastructure as is their exposure to growing industries such as childcare and hospitality.

NOTE: Further information on the Devon Australian Fund can be found in our Quarterly Fund Updates by visiting https://devonfunds.co.nz/australian-fund or by clicking HERE



MONTHLY REPORT




DEVONDIVERSIFIEDINCOMEFUND

F U N D O U T L I N E The Devon Diversified Income Fund aims to give New Zealanders access to a diverse and good quality portfolio of high yielding investments.The Fund aims to generate better-than-bank income rates by investing in a carefully selected portfolio of gov-ernment and corporate bonds, cash, listed property, infrastructure, utility companies, high yielding equities, credit securities and other yielding financial assets.


Equities

Fixed Interest

Cash

G R O W T H

A T A G L A N C E

NZ Equities 13.7%

AU Equities 10.3%

Targeted Portfolio Yield 5.0%Commenced January 2016Total strategy $5.04mDistributions Target distributions of

1.5 cents per unit af-ter tax paid quarterly

January 2018

D E V O N D I V E R S I F I E D

I N C O M E F U N D

Global interest rates pushed higher during January with US 10-year rates particularly strong, closing the month at over 2.70%. Although the US Federal Reserve did not change interest rates at their meeting during the month, the expectation continues to be that 3 rate hikes will occur during 2018. Jerome Powell, Donald Trump’s nomination as the new head of the US Federal Reserve, received Senate approval for his appoint-ment and is expected to begin in this role in early February. New Zealand economic data continues to be reasonably mixed. The December quarter inflation print was reported at just 0.1% (much lower than the expected 0.4%) and therefore it was no surprise that the RBNZ left interest rates unchanged. In fact expectations are now building towards a view there will be no change to the Official Cash Rate until 2019. There were no changes made to this portfolio in January.

D E F E N S I V E

Cash 17.4%

NZ Corporate Bonds 58.6%

NZ Government Bonds 0.0%

*Fund commenced on 1 January 2016

Devon Diversified Income Fund*

$9,800

$10,000

$10,200

$10,400

$10,600

$10,800

$11,000

$11,200

Jan

16 Mar

May Ju

l

Sep

Nov

Jan

17 Mar

May Ju

l

Sep

Nov

Jan

18



1 Mth 3 Mth 1 Yr 2 Yr p.a

Devon Diversified Income Fund -0.1% 1.1% 6.8% 5.1%

OCR + 1.5% 0.3% 0.9% 3.5% 3.6%

Devon Diversified Income Fund returns are after all fees and expenses, but before tax which varies by investor. Inception date for the Fund is 1 January 2016.


Over the last decade Nick has specialised in investing in high yield equities and is Portfolio manager for the Devon Alpha, Diversified In-come and Dividend Yield Funds. At Devon,

Nick has responsibility for the analysis of con-sumer staples, IT, consumer discretionary and property sectors. Nick is also responsible for our quantitative screening process.

NOTE: Further information on the Devon Diversified Income Fund can be found in our Quarterly Fund Updates by visiting https://devonfunds.co.nz/diversified-income-fund or by clicking HERE



MONTHLY REPORT




DEVON DIVIDENDYIELD FUND

F U N D O U T L I N E The Devon Dividend Yield Fund consists of a select group of up to 25-35 New Zealand and Australian listed companies. These stocks are chosen for their attractive dividend yields and growth prospects with the aim of maintain-ing the dividend yield and capital value in real terms. The Australian dollar currency exposure is typically fully hedged.


Financials

Materials

Discretionary

Energy

Industrials

Info Tech

Staples

Telecoms

Utilities

Cash

*Fund commenced on 20 December 2012

Devon Dividend Yield Fund*

$7,500

$9,500

$11,500

$13,500

$15,500

$17,500

$19,500

$21,500

Nov

Jan1

3

Mar

May Ju

l

Sep

Nov

Jan1

4

Mar

May Ju

l

Sep

Nov

Jan1

5

Mar

May Ju

l

Sep

Nov

Jan 1

6

Mar

May Ju

l

Sep

Nov

Jan 1

7

Mar

May Ju

l

Sep

Nov

Jan 1

8

N E T P E R F O R M A N C E Based on $10,000 invested at 20 December 2012




Devon Dividend Yield Fund -1.4% 0.6% 4.9% 8.4% 13.1%

TT Index (Hedged) 0.0% 3.3% 16.0% 10.5% 11.9%Devon Dividend Yield Fund returns are after all fees and expenses, but before tax which varies by investor.

January 2018


Over the last decade Nick has specialised in in-vesting in high yield equi-ties and is Portfolio man-ager for the Devon Alpha, Dividend Yield and Diver-sified Income Funds. At

Devon, Nick has responsibility for the analysis of consumer staples, IT, consumer discretion-ary and property sectors. Nick is also responsi-ble for our quantitative screening process.

D E V O N D I V I D E N D Y I E L D F U N D

During January there was a mix of contri-butions to the performance of this strategy. Positive returns were generated by our investments in National Tyre and Wheel, Super Retail Group and BHP Billiton while detractors included Aurizon and Spark Infrastructure. BHP Billiton had another good month, rising more than 2%, and continuing its strong performance over the past 2-years. This has been driven by a demand-led recovery in commodity prices and by an increased focus by the BHP board and executive on improving the company’s return-on-capital and develop-ing their capital management programme. At the recent half-year operational review, CEO Andrew Mackenzie reported pro-duction and cost experiences that were broadly in-line with expectations although the Copper division was a highlight with strong volumes being achieved from their Escondida and Los Colorados projects. Aur-izon and Spark Infrastructure saw weakness in their share prices as a result of sharply rising global bond rates.



Cash 3.8%

Total 100.0%

Currency Hedge 100.0%

Yield 6.67%

NOTE: Further information on the Devon Dividend Yield Fund can be found in our Quarterly Fund Updates by visiting https://devonfunds.co.nz/dividend-yield-fund or by clicking HERE



MONTHLY REPORT




DEVON TRANS-TASMANFUND

F U N D O U T L I N E The Trans-Tasman Fund provides a broad and actively managed exposure to the NZ and Australian equity mar-kets. This Fund typically holds 25 to 35 shares listed on the NZ and Australian stock exchanges which have been carefully selected as offering good value and attractive medium term growth prospects. The Australian dollar currency exposure is typically unhedged.


FinancialsMaterialsDiscretionaryEnergyHealthcareIndustrialsInfo TechStaplesTelecomsUtilitiesCash

Devon Trans-Tasman Fund

$7,500

$9,500

$11,500

$13,500

$15,500

$17,500

$19,500

$21,500

Jan 1

1M

arM

ay Jul

Sep

Nov

Jan 1

2M

arM

ay Jul

Sep

Nov

Jan 1

3M

arM

ay Jul

Sep

Nov

Jan 1

4M

arM

ay Jul

Sep

Nov

Jan 1

5M

arM

ay Jul

Sep

Nov

Jan 1

6M

arM

ay Jul

Sep

Nov

Jan 1

7M

arM

ay July

Sep

Nov

Jan 1

8





Devon Trans-Tasman Fund -1.2% 0.9% 13.1% 8.6% 12.0%

Trans-Tasman Index Gross -0.2% 2.2% 19.1% 10.9% 10.5%

Devon Trans Tasman Fund returns are after all fees and expenses, but before tax which varies by investor.

January 2018



Cash 3.8%

Total 100.0%

D E V O N T R A N S - T A S M A N F U N D

The Trans-Tasman strategy underperformed its benchmark during the month but there were notable performances generated by some of our key investments. Amongst these were healthcare names CSL and Resmed which rallied 3.6% and13.5% re-spectively. Resmed announced their 2Q18 result which highlighted strong customer support for their new range of masks. This has resulted in the company, for the second quarter in a row, reporting double-digit sales growth in their masks across both the US and Rest-of-World. The company also reported above market growth in their Devices and a solid performance from their software business, Brightree. Gross margins for the company were supported by im-provements to manufacturing efficiencies. The performance of Resmed was in stark contrast to their competitor Fisher and Paykel Healthcare (FPH) which closed the month down almost 7% although FPH is still up 54% over the past 12 months.

P O R T F O L I O M A N A G E RTama Willis

After a long period in international invest-ment markets, Tama returned to NZ after a very successful career in London and Singa-pore to join Devon’s investment team and holds responsibility for

Devon’s Australian and Trans Tasman Funds. Tama is widely regarded as a leading expert on resource and mining stocks. NOTE: Further information on the Devon Trans-Tasman Fund can be found in our Quarterly Fund

Updates by visiting https://devonfunds.co.nz/trans-tasman-fund or by clicking HERE



MONTHLY REPORT




GLOBALTHEMESFUND

F U N D O U T L I N E The Global Themes Fund invests in Global Financial Assets predominently Global Exchange Traded Funds (ETF’s). We identify macroeconomic or thematic investment ideas with a 2-5 year time horizon, and implement the investment ideas through appropriate high quality assets. Portfolio risk is managed by ensuring broad diversification, ample liquidity and close monitoring of tracking variation versus a passive equity benchmark. The Global Themes strategy has been run by JBWere since March 2005. In October 2014 Devon Funds Management created a NZ PIE Fund to fol-low the Global Themes strategy and has appointed JBWere as the adviser.

F U N D U P D A T E

January was an earnings-driven start to what we believe will be an earnings-driven year. In a late cycle bull market, investors are increas-ingly in a “show me the money” mindset. If they’re not, they should be.

Against this backdrop, our themes were reasonably well served. The Trump tax cuts meant analysts have been busily upgrading earnings forecasts for US banks by 10-15% for 2018 and 2019. Our Bank theme rallied ~6% in USD terms over the month. We expect loan growth to pick up in the US in 2018, which should provide additional earnings uplift to regional banks.

Technology is in the beginning of its quarterly earnings season, which has been given a good start with better than expected results from Facebook and Microsoft.

Most pleasingly, Medical Devices have shown exactly the sort of earnings performance we are owning this theme for. Results from the likes of Intuitive Surgical are underpinning the impact of new technologies such as robotic surgery. The theme rallied 10% in USD over the month.

A weak USD is our only complaint for the year so far. This is a headwind for our country tilts into Europe and Japan which do not enjoy

strength in their own currencies. We believe the USD is oversold and expect to see at least a stabilisation over the coming weeks.

R e t u r n s

The Global Themes Fund rose 3.5% in January, finishing the month at a unit price of $2.8823. This compares with a 3.7% increase in our global equity benchmark.

Our fund has risen 11.9% per annum since inception net of fees, versus 13.6% growth in the iShares MSCI All Country World Index Exchange Traded Fund (50% hedged

to NZD).

C u r r e n c y e x p o s u r e s

We continue to hold the currency hedge level in the fund at its benchmark weight of 50%. The Kiwi has rebounded to ~73 cents, amidst broad selling of the USD. However we see this as very much a range trade. We would need to see the Kiwi move closer to 80 cents before we felt a need to adjust our hedges.

SENIOR INVESTMENT ADVISERBernard Doyle

Bernard oversees equity strategy and global tac-

tical asset allocation for JBWere New Zea-land. Prior to this role,

Bernard was the New Zealand Equity Strate-

gist for Goldman Sachs and Partners, where his team was rated #1 for Strategy and Economics by INFINZ for a num-ber of years. Bernard has 18 years experience in financial markets. He graduated in 1993 with Honours in Economics from Victoria Uni-versity of Wellington.

January 2018

S E C T O R A L L O C A T I O N C U R R E N C Y E X P O S U R E

US Dollar, 39.4%

Sterling, 2.3%

Indian Rupee, 4.7%Other, 0.686%

NZ Dollar, 52.9%

North American Tech 20%

S&P Bank ETF17%

Currency Hedged MSCI

17%

Japan Hedged Equity Fund 11%

US Medical Devices 10%

ST.Eu.600 Telecom 7%

ST.Eu.600 Automobiles and

Parts 5%

U.S. Oil Equipment & Services 5%

MSCI India 4%

N E T P E R F O R M A N C E S I N C E I N C E P T I O N Returns versus Benchmark

95100105110115120125130135140145150155160

Tota

l ret

urn

afte

r in-

fund

fees

Returns versus Benchmark

Global Themes Fund

Benchmark*

* iShares MSCI All Country World Index ETF, 50% hedged to NZD

NOTE: Further information on the Devon Global Themes can be found in our Quarterly Fund Updates by visiting https://devonfunds.co.nz/global-themes-fund or by clicking HERE


devon jan...devon trans-tasman fund $3.7912 global themes fund $2.8823 prices as at 31 january 2018...

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